China, US Face Off Over Textiles
The Bush administration announced on Nov. 18 that it
would slap import quotas on some Chinese textiles, which
some U.S. officials have blamed for job losses. The quotas
would cap the rise in Chinese textile shipments at 7.5
percent above the total for the last year or so, and would
be in place for a year.
In a sign that the US wants to give a cooling off period
before the measures take effect, the decision affects
less than five percent of China's textile exports to the
United States and won't come into effect for three months.
China quickly responded by canceling a soybean buying
mission to the US, officially citing "visa problems"
as the cause.
With a presidential election coming up in 2004, China
trade relations have become a sensitive topic in US domestic
politics. In an effort to curry favor with voters, the
Bush administration has leveled criticism at China over
the Chinese yuan, which is pegged at 8.28 to the US dollar,
and has dispatched Treasury secretary John Snow and Commerce
secretary Don Evans to Beijing to get the Chinese government
to make concessions. At an Asian summit meeting in October,
President Bush personally pressed Chinese president Hu
Jintao about the same issue. So far, they have only been
able to get vague commitments about the yuan eventually
becoming a convertible currency.
The main question is if this move is the first step towards
a more protective trade policy on the US side. So far,
the Bush administration has not allowed its assertive,
go it alone foreign policy to color its trade policy,
and has generally been in favor of free trade. One exception
which has brought this policy into sharper focus is its
steel dispute with the EU, which has been ruled to be
a violation of WTO regulations. Under the ruling, the
Bush administration must lift the steel tariffs by mid-December,
or face retaliatory trade tariffs.
But, if this is simply the first move towards a more
protectionist trade policy, this would represent going
back on trade commitments supported by US administrations
over the past 50 years, and negotiated multilateral agreements
under the WTO framework. Under the WTO framework, countries
are not allowed to give preferential agreement to their
own domestic companies, and must allow international companies
to do business in their own markets.
China joined WTO in 2001, and has used the WTO agreements
as a tool to force open its own economy, and to encourage
companies to meet international standards of competitiveness.
Under China's terms of accession, it was allowed to open
sectors to foreign competition sequentially, buying time
for its industries to reform before facing competition.
A trade war would have the unfortunate effect of helping
companies in China and the US which do not want, or cannot
reform. In China's case, it would slow down reform of
the financial sector, which is still faced with too many
loss-making state-owned enterprises, and inefficient flow
of capital.
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